Former federal Liberal leader
John Hewson
joined industry and unions in lashing a move by Victorian Premier
Denis Napthine
to ignore his government’s own taskforce and extend a ban on onshore gas development until 2015.

They said it would increase the cost of living and put jobs and manufac­turers at risk from soaring gas prices and tight supply. Dr Hewson, who led the Liberals to defeat in the 1993 election, said governments “will regret the fact that people will look back and blame them for inaction. If prices go up, the electorate is going to react like they did to rising power prices."

Dr Napthine, whose fragile government faces an election next November, said more time was needed to ensure developing onshore gas was safe for water resources.

On Thursday, he released a report by former federal minister
Peter Reith
urging the government to lift the hold on fracking and push onshore gas to ward off rising prices, subject to a range of reforms including the adoption of a “royalties for regions" scheme to let communities share the spoils, and the appointment of a “gas commissioner".

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Business Council of Australia chief executive
Jennifer Westacott
said: “At a time when gas prices are rising on the east coast, the Victorian government has chosen to further delay onshore gas opportunities for Victoria. This is no time for delays."

Phil Barresi
, chief of the Energy Users Association of Australia and a former Victorian Liberal MP, said energy users “are facing contractual negotiations and having to make business decisions to remain in or vacate the manufacturing space".

Decision ignores social values

Dr Napthine said the government would consult on Mr Reith’s report, ban certain chemicals from use in fracking and ask GeoScience Australia to study the state’s underground water systems in April 2015.

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Producers compared the decision unfavourably with the pro-development approach in Queensland and South Australia.
Beach Energy
chief executive
Reg Nelson
said the decision “flies in the face" of a long history of onshore gas production and ignores the social value of job creation and regional growth. He said the ban on BTX (benzene-toluene-xylene) chemicals was a “slur on responsible operators".

Robert Annells
, the chairman of
Lakes Oil
, which has “tight rock" gas in Gippsland that it believes can be ­produced without fracking, said officials from
China Petroleum & Chemical Corporation
will soon be in Victoria to look at potential industrial developments. “They want to meet the government, but what is the government going to say to them?" Mr Annells asked.

Australian Workers Union national secretary
Paul Howes
said it was an “act of political cowardice" by Dr Napthine.

“There are tens of thousands of ­manufacturing workers in Victoria who will possibly feel the disappointment more than he will."

Grant Lukey
, executive general manager of
Coogee Energy
, which operates a methanol plant at Laverton, said it would be years before the report’s recommendation’s bore fruit and by that time “the chemical industry will be lost".

Manufacturing Australia chairman
Sue Morphet
said a solution was needed to the “imminent" gas crisis that the group had warned about for two years. Victorian manufacturers face a potential $500 million-a-year slug from rising gas prices.

The Reith report found that residential gas prices were likely to increase by about 30 per cent by 2015, and by 2020 be about 20 per cent higher than 2013 prices. That will cost the typical household about $250 a year. Mr Reith has campaigned loudly for a lifting of the moratorium on fracking to help keep a lid on rising gas prices.His report quotes GeoScience Australia as saying that fracking “when conducted correctly, is unlikely to introduce hazardous concentrations of chemicals into groundwater or to create connections between fresh and coal-containing aquifers".

Reforms before fracking

Dr Napthine played down the concerns, saying Victoria was blessed with energy options and is in no hurry to exploit onshore gas. “Let me say to people involved in the onshore gas industry: there will be no onshore gas industry in Victoria unless it’s absolutely safe," he said.

The report also found large industrial users of gas were struggling to secure long-term contracts and “some manufacturing firms have indicated they may shut down if they cannot secure gas at competitive prices".

Dr Napthine played down those concerns, saying the state was blessed with energy options including coal, gas-fired power stations, solar and wind power.

“We are in no hurry to look at onshore gas," he said.

He also played up the potential opportunities to develop new offshore gasfields, particularly in the Otway Basin.

“We have enormous offshore gas supplies and there are new gas supplies opened recently in the Bass Strait in Gippsland, and there are new additional gas supplies in the Bass Strait in the Otway basin, which are untapped and are available, and we know they are there," he said.

A very long consultation process

“They are looking at a very long consultation process,"
Graham Bethune
, chief executive of analysis firm EnergyQuest, said. “I would have thought it would have been better for the government to use this as an educational process to make sure the community is well informed," he said.

Dr Napthine said the government was closely monitoring the development of the industry in other states. Even if development started now, the task force stated in its report that it would take too long to bring unconventional gas into the market to head off the spike in prices or the shortfall in supply predicted for 2017. The task force also rejected the policy of reserving some supply of gas for domestic users.

The Reith report recommended the government adopt a royalty regime that is competitive with other states and a “royalties for regions" model currently used in Western Australia to attract more support from hostile farmers and rural communities.

The taskforce said the tax and royalty terms should be set by the government as soon as possible “in order to provide certainty for industry".

However, the report says the onshore gas industry should not be developed until a package of reforms is adopted – including best-practice regulation, community engagement, information and science – to underpin the management of the onshore gas industry in Victoria.

The reforms should include the adoption by Victoria of the National Harmonised Regulatory Framework for coal seam gas, to which the Napthine government has already agreed as part of the Council of Australian Governments process.

The report also recommended that Victoria take a leaf out of the Queensland government’s playbook and appoint a gas commissioner to engage landholders and communities, which remain strongly opposed to coal seam gas development and fracking.

The commissioner’s main role will be to build landholder and community confidence in the processes around unconventional gas exploration and the potential for development in Victoria.